The dollar index (DXY00) on Tuesday fell by -0.21%. The dollar was under pressure Tuesday over the Fed’s independence and fears about capital flight after President Trump moved to fire Fed Governor Lisa Cook, citing “sufficient cause” based on allegations she made false statements on one or more mortgage loans. If Mr. Trump succeeds in firing Fed Governor Cook, foreign investors may lose faith in the Fed and the dollar and swap their dollar assets into non-dollar investments.
The dollar recovered from its worst levels after Fed Governor Cook said she will not resign and will fight any attempt by President Trump to fire her. Also, Tuesday’s stronger-than-expected US capital goods and consumer confidence reports were supportive of the dollar.
US July capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +1.1% m/m, stronger than expectations of +0.2% m/m.
The US June S&P Core Logic composite-20 home price index eased to +2.14% y/y from +2.81% y/y in May, the smallest increase in two years.
The Conference Board’s Aug US consumer confidence index fell -1.3 to 97.4, stronger than expectations of 96.5.
The US Aug Richmond Fed manufacturing survey rose +13 to a 5-month high of -7, stronger than expectations of -11.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 86% at the September 16-17 FOMC meeting and at 51% for a second -25 bp rate cut at the following meeting on October 28-29.
EUR/USD (^EURUSD) rose by +0.22% on Tuesday. The euro moved higher on Tuesday due to dollar weakness. The euro also has support on speculation that the euro will benefit from any flight from dollar assets caused by concerns about the Fed’s independence.
Gains in the euro were limited after Tuesday’s Eurozone economic news showed the French Aug consumer confidence indicator unexpectedly fell to a 1.75-year low. Additionally, political turmoil in France is bearish for the euro, following French Prime Minister Bayrou’s call for a confidence vote that could bring down his government as soon as next month.
On the geopolitical front, diplomatic efforts to end the war in Ukraine remain elusive, as the US tries to broker a peace deal between the two countries. On Sunday, Russian Foreign Minister Lavrov said there was no meeting planned between the leaders of Russia and Ukraine and that there “needs to be an agenda first” before a meeting can take place. “This agenda is not ready at all.” The outcome could have macroeconomic implications regarding tariffs and oil prices, and could, of course, have significant consequences for European security.
